Boards in the Spotlight: New Disclosure Requirements

Transcription

1 February 2010 Inside this issue: Boards in the Spotlight: New Disclosure Requirements... 1 SEC Chairwoman Schapiro Calls for Fundamental 12b-1 Reform. 3 SEC Director Donohue on Challenges Facing Independent Directors... 4 SEC Receives Recommendations on Selecting Investment Advisers, Companies for Examination... 5 President Announces New Interagency Financial Fraud Enforcement Task Force... 7 Court Dismisses Excessive Fee Case But Criticizes Directors... 8 K&L Gates comprises lawyers in 35 offices located in North America, Europe, Asia, and the Middle East and represents capital markets participants, entrepreneurs, growth and middle market companies, leading FORTUNE 100 and FTSE 100 global corporations and public sector entities. For more information, please visit Boards in the Spotlight: New Disclosure Requirements On December 16, 2009, the SEC adopted amendments to the proxy rules for both registered investment companies and operating companies, and amendments to the registration forms for open- and closed-end investment companies. The new provisions require investment companies to provide new or expanded disclosure on the leadership structure of the board, the board s oversight of risk management efforts, and qualifications for board membership. Proxy Statement Disclosure Changes Board Leadership Structure The SEC s amendments require disclosure of the board s leadership structure, including: whether the same person serves as both principal executive officer and board chair; whether the board chair is an interested person of the fund as defined in the Investment Company Act; if one person serves in both roles, or if the board chair is an interested person, whether the registrant has a lead independent director and what specific role the lead independent director plays in the leadership of the board; and why the registrant has determined that its leadership structure is appropriate, given the specific characteristics or circumstances of the registrant. The Adopting Release states that the amendments regarding disclosure of the board s leadership structure are intended to provide investors with more transparency about the company s corporate governance, but are not intended to influence a company s decision regarding its board leadership structure. Indeed, the Adopting Release, in discussing companies in general, notes that different leadership structures may be suitable for different companies depending on factors such as the size of a company, the nature of a company s business, or internal control considerations, among other things.

2 Board Role in Risk Oversight The amendments also require disclosure of the extent of the board s role in overseeing risk management, such as how the board administers its oversight function, and the effect that this has on the board s choice of leadership structure. The Adopting Release notes that the SEC changed its description of this requirement from the proposing release, which called for a discussion of the board s role in the company s risk management. The Commission cited comments on the proposal urging that the board s role is not risk management, but to oversee management, which is responsible for the day-to-day issues of risk management and that risk oversight is a key competence of the board. The Adopting Release notes that funds face a number of risks, including investment risk, compliance and valuation. The release states that the Commission s new disclosure requirement should provide important information to investors about how a fund perceives the role of its board and the relationship between the board and the fund s adviser in managing material risks facing the fund. In discussing this requirement, the Adopting Release states that companies have the flexibility to describe how the board administers its risk oversight function, such as through the whole board, or through a separate risk committee or the audit committee, for example. The release notes that companies may want to discuss how the board interfaces with individuals who supervise the day-to-day risk management responsibilities. Qualifications and Experience of Directors and Nominees Another of the SEC s amendments requires disclosure of the specific experience, qualifications, attributes, or skills that led to the conclusion that each director or nominee should serve as a director of the fund. This information is required for all directors, whether or not they are up for reelection (although, in accordance with the general instructions, information need not be provided with respect to directors who will not continue to serve after the election to which the proxy statement relates). Although certain disclosure requirements relate only to the last five years, disclosure under this item should cover more than the past five years, including information about the person s particular areas of expertise or other relevant qualifications, if material. Proponents other than the registrant that put forward candidates for director must include this information in their proxy materials. Prior Directorships A proxy statement must now disclose any directorships held during the past five years by each director or nominee for election as director in any company with a class of securities registered under Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act, or any registered investment company (collectively, Reporting Companies ). The Adopting Release states that this information will allow investors to better evaluate the relevance of a person s past board experience, as well as professional or financial relationships that might pose potential conflicts of interest.... Prior Legal and Disciplinary Actions The amendments also require disclosure of whether any director, nominee or executive officer was the subject of, or a party to: any federal or state judicial or administrative order, judgment, decree or finding, not subsequently reversed, suspended or vacated, relating to alleged violation of: 2 Februray 2010

3 Investment Management Update o any federal or state securities or commodities law or regulation, o any law or regulation respecting financial institutions or insurance companies, or o any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization or equivalent organization. The language of this provision, which requires disclosure where a person is the subject of or a party to a proceeding relating to alleged violations of the named statutory or regulatory provisions, is potentially very broad. Registrants responding to the new requirements may omit disclosure of proceedings that are not material to an evaluation of the ability or integrity of any director, nominee or executive officer. This new requirement to disclose a director s or nominee s involvement in various legal proceedings covers proceedings occurring in the past ten years. Role of Diversity in Considering Board Candidates Current disclosures must include a description of the board s process for identifying and evaluating nominees for director. This requirement has been amended to include disclosure of whether and, if so, in what way, the nominating committee or the board considers diversity in identifying nominees. If the committee or the board has a policy with regard to consideration of diversity, the registrant must describe how the policy is implemented, as well as how the committee or the board assesses the effectiveness of its policy. The Adopting Release notes that companies may define diversity in various ways, with some looking to differences of viewpoint, professional experience, education, skill and other individual qualities and attributes that contribute to board heterogeneity, while others may focus on diversity of race, gender and national origin. The Commission noted that, for purposes of this disclosure requirement, companies should be allowed to define diversity in ways that they consider appropriate. Registration Statement Disclosure Changes Registration statements must now include disclosure similar to that described above regarding: the leadership structure of the board; the extent of the board s role in risk oversight; directorships held by fund directors during the past five years in any Reporting Companies; and the specific experience, qualifications, attributes or skills that led to the conclusion that each board member should serve as a director of the fund. Effective Date All amendments are generally effective February 28, SEC Chairwoman Schapiro Calls for Fundamental 12b-1 Reform SEC Chairwoman Mary Schapiro repeated her call for reform of 12b-1 mutual fund fees in a speech at the Consumer Federation of America s annual financial services conference. 3

4 The speech focused on the protection of retail consumers and the need to provide clear, simple, meaningful disclosure at the time they are making an investment decision. Ms. Schapiro stated that the regulation of 12b-1 fees requires a more fundamental change than merely disclosure reforms and a name change. We must critically rethink how 12b-1 fees are used and whether they continue to be appropriate. Ms. Schapiro listed reform of 12b-1 fees as one of the meaningful and effective financial reforms being sought by the SEC. She noted that 12b-1 fees are automatically deducted from mutual funds to compensate securities professionals for sales and services provided to mutual fund investors. However, Ms. Schapiro warned that the problem is that our investor may have no idea these fees are being deducted or who they are ultimately compensating. A key issue to be addressed, according to Ms. Schapiro, is whether some investors are overpaying for services or paying for distribution services that they may not even know they are supposed to be getting. Noting the substantial growth of 12b-1 fees, from just a few million dollars in 1980 when they were first permitted to more than $13 billion in 2008, Ms. Schapiro observed that it is past time to reassess the need and effectiveness of the fees. Ms. Schapiro stated that she has asked the staff for a recommendation on 12b-1 fees for Commission consideration in The issue has been under consideration at the SEC for several years now. SEC Director Donohue on Challenges Facing Independent Directors In a recent speech before the Independent Directors Council Conference, the director of the SEC s Division of Investment Management, Andrew Buddy Donohue, discussed what he views as some of the challenges facing independent directors that are less obvious than recurring matters such as approving a fund s investment advisory agreement, but every bit as important. Mr. Donohue identified the following areas as highlighting the necessity for... continued vigilance on the part of independent directors: Expense Recapture Mr. Donohue addressed the situation where an adviser agrees to waive a portion of its fees above a capped expense ratio and simultaneously sets up a program to recapture those waived fees, typically in the next three years, if expenses fall below the cap. He stated that the SEC staff s position is that in order for advisers to recapture waived fees, the adviser may do so only in accordance with the original recapture plan, regardless of any subsequent increase in the expense cap. He stressed that independent directors should be cautious if an adviser asks the fund to increase the expense cap in order to allow the recapture of fees already waived by the adviser and said that it is difficult to articulate how a board would find such a transaction to be in the best interests of fund investors. Management Entrenchment Mr. Donohue cautioned directors, particularly those that oversee closed-end funds, to be prudent in their responses to takeover attempts. Discussing several examples of takeover defenses, including a request by management to adopt a poison pill, to invoke voting restrictions, or to pursue other strategies that have the effect of entrenching management, Mr. Donohue noted the skepticism contained in the federal law regarding actions that would tend to 4 February 2010

5 Investment Management Update entrench management if such action is harmful to shareholders. He admonished directors to ask not just whether the action is legal under state and federal law, but whether it is truly in the best interests of fund shareholders. Fund Mergers Mr. Donohue observed that this year we have witnessed a significant increase in the number of fund mergers and reminded directors to consider questions such as how a merger affect[s] the investment strategy of the fund, whether the merger will result in higher costs for shareholders of the acquired fund and what the tax consequences are. In addition, he noted that, although a merger can be beneficial to shareholders for numerous reasons, some recent mergers appeared to be structured for the sole purpose of merging away a fund with poor performance. Mr. Donohue gave examples of particular merger scenarios that might draw the SEC staff s scrutiny, stating that [i]f a poorly performing fund is merged into another fund, directors must be cognizant of the accounting survivor analysis that determines which fund s performance is carried over to the new entity. Fulcrum Fees Mr. Donohue addressed the topic of fulcrum fees, explaining that [i]n a nutshell, a fulcrum fee is a performance-based fee that an adviser charges a fund when the adviser achieves a return above a certain benchmark. Conversely, he stated, a fulcrum fee may force an adviser to reimburse the fund when there is a significant decline in assets coupled with poor performance. In those instances, the SEC staff has observed that some funds try to implement a floor total fee, which would limit the downside to an adviser by providing it a minimum cash payment and prevent the adviser from ever having to reimburse the fund. He stated that the problem with the floor approach is that it only limits the downside without proportionally limiting the adviser s upside and that, in order to be permissible, incentive adjustments must be symmetrical. Yield and Managed Distribution Plans Mr. Donohue discussed disclosures associated with a fund s yield or its managed distribution plan, whereby closed-end funds sometimes tout a high, level dividend or managed distribution plan to investors, possibly leading investors to incorrectly believe that the dividend rate is yield, i.e., earned income or gain, when it may in fact include a return of capital. He stated that directors must make sure that the fund s disclosures explain what the distribution yield represents and what it does not represent and that it is not confused with the fund s actual performance. In particular, he noted, if a fund with a managed distribution plan does not earn enough income to sustain a distribution, it must be clear that distributions to investors may be paid from a return of capital which has the effect of depleting the fund s assets. SEC Receives Recommendations on Selecting Investment Advisers, Companies for Examination The SEC s Office of Inspector General (OIG) has recommended changes designed to strengthen the [SEC s] process for selecting Investment Advisers and Investment Companies for examination. 5

6 OIG s review of, and resulting recommendations to improve, the SEC s examination selection processes come in the wake of the SEC s failure to uncover the illegal activities of Bernard Madoff s investment firm. As a result, the recommendations propose new rules, policies and protocols that are designed to enhance communications, investigations and data sharing, so as to better address negative information uncovered about an investment adviser or investment company. The Office of Compliance Inspections and Examinations (OCIE) endorsed OIG s recommendations, each of which follows: Research existing data. [A]s part of its process for creating a risk rating for an investment adviser... OCIE staff [should] perform a search of Commission databases containing information about past examinations, investigations, and filings related to the investment adviser. Use data from all sources. OCIE should change the risk rating of an investment adviser based on pertinent information garnered from all Divisions and Offices of the Commission, including information from OCIE examinations and Enforcement investigations, regardless of whether the information was learned during an examination conducted to look specifically at a firm s investment advisory business. Share data with Enforcement. OCIE and the Division of Enforcement should create a joint protocol providing for the sharing of all pertinent information... identified during the course of an investigation or examination, including violations of securities laws or an adviser s disciplinary history. Better evaluate negative information. OCIE should establish a procedure to thoroughly evaluate negative information that it receives about an investment adviser and use this information to determine when it is appropriate to conduct a cause examination of an investment adviser. Investigate discrepancies from past filings. When OCIE learns of negative information about an investment adviser, OCIE should examine the investment adviser s Form ADV filings and document and investigate discrepancies existing between the adviser s Form ADV and [previously learned] information about the registrant. Develop review procedures after learning bad information. OCIE should establish a procedure to thoroughly evaluate an investment adviser s Form ADVs when OCIE becomes aware of issues or problems with an investment adviser. Then, OCIE should document areas where it believes a Form ADV contains false information and initiate appropriate action, such as commencing a cause examination. Recalibrate its scoring methodology. OCIE should re-evaluate the point scores that it assigns to advisers based on both (i) their reported assets under management and (ii) the number of clients to which they provide investment advisory services. It should assign progressively higher risk weightings to firms with greater assets or larger numbers of clients. Add more disclosures to Form ADV. OIG recommends implementation of a new rule that would require the following additional information to be reported as part of Form ADV: o Performance information; o A fund s service providers, custodians, auditors and 6 February 2010

7 Investment Management Update administrators, and applicable information about these entities; o A hedge fund s current auditor and any changes in the auditor; and o The auditor s opinion of the firm. Finalize proposed Form ADV rule changes. OIG recommends that the SEC finalize the proposed amendments to Part II of Form ADV, first proposed in March In doing so, OIG stated that the SEC should consult with OCIE and consider [adding] provisions that would assist OCIE to efficiently and effectively review and analyze the information in Part II of Form ADV. Develop third-party policies. OCIE should develop and adhere to policies and procedures for conducting third-party verifications, such that OCIE verifies the existence of assets, custodian statements, and other relevant criteria. OIG requested that the SEC respond in January to OIG with a proposed plan to implement these recommendations. President Announces New Interagency Financial Fraud Enforcement Task Force President Obama has announced the establishment of a new Financial Fraud Enforcement Task Force to combat financial crime. The Department of Justice will lead the Task Force and senior officials from the Department of Treasury, HUD and the SEC will serve on the steering committee. Other members of the Task Force will come from a broad range of federal agencies, regulatory authorities and inspectors general. The Task Force also will include representatives from state and local governments. The creation of the Task Force should lead to more effective prosecution of financial fraud. The Task Force will focus on increasing coordination and fully utilizing the resources and expertise of federal, state, local, tribal, and territorial authorities. Many financial frauds are complicated puzzles that require painstaking efforts to piece together, SEC Chairwoman Schapiro said, adding that by formally coordinating our efforts, we will be better able to identify the pieces, assemble the puzzle, and put an end to the fraud. The primary mission of the Task Force is to provide advice to the Attorney General on the investigation and prosecution of a litany of financial crimes, including: bank, mortgage, loan, and lending fraud; securities and commodities fraud; retirement plan fraud; mail and wire fraud; tax crimes; money laundering; False Claims Act violations; unfair competition; and discrimination. In addition to stepping up the government s enforcement and prosecution capacity, the Task Force is intended to help detect and stop emerging trends in financial fraud before they re able to cause extensive, system-wide damage to the economy. Robert Khuzami, Director of the SEC s Division of Enforcement, who formerly served as a federal prosecutor with the DOJ, remarked that the SEC s vigorous enforcement [of financial fraud] is critical because it offers immediate and public vindication of certain bedrock principles, including that no one should have an unfair advantage in our markets and that investors have a right to truthful and accurate disclosure; that there be a level playing field [in the markets]; and that if you stray into foul territory, there is a high risk that you will be caught, prosecuted and punished. Director Khuzami added that the Task Force should increase the effectiveness of the SEC s recently launched national specialization units centered on, among 7

8 other matters, derivatives, insider trading, and fraud among hedge fund and investment advisers. The Financial Fraud Enforcement Task Force replaces the Corporate Fraud Task Force that was established in 2002 in the wake of the bankruptcy of Enron Corporation. Court Dismisses Excessive Fee Case But Criticizes Directors On December 28, a California federal district court dismissed an excessive fee case applying the Gartenberg standard, but, in an unusual departure from other excessive fee rulings, also provided extensive dicta on the role of independent directors in reviewing advisory and distribution agreements. In re American Mutual Funds Fee Litigation. The case was a victory for the adviser and the industry generally, insofar as the court applied the standards set forth in Gartenberg v. Merrill Lynch Asset Management, Inc. (which was recently rejected by the 7th Circuit Court of Appeals in Jones v. Harris Associates L.P. and modified by the 8th Circuit Court of Appeals in Gallus v. Ameriprise Financial, Inc.). The case has garnered attention from the industry, much of it critical of the court s commentary on the role played by the fund directors. Background The suit was brought on behalf of investors in eight mutual funds and alleged that the funds adviser and distributor had breached the fiduciary duty imposed on them by Section 36(b) of the Investment Company Act of 1940 with respect to compensation received for various services rendered to the funds and that the funds were charged excessive advisory, Rule 12b-1, and administrative fees. Gartenberg Prevails Under Section 36(b) of the 1940 Act, advisers generally have a fiduciary duty with respect to the receipt of compensation for services. In reaching its decision, the court considered the legal standard to be applied to excessive fee claims and noted that the majority of courts have followed the standard set forth in Gartenberg. The court rejected the alternative standards set forth in Jones ( rejecting Gartenberg because it relies too little on markets and holding that, so long as the fiduciary makes full disclosure the law places no cap on compensation ) and Gallus (expanding Section 36(b) to provide a cause of action even where the challenged fee passed muster under the Gartenberg standard ). In rejecting Jones and Gallus, the court commented that the Jones standard ignores the plain language of Section 36(b) and would essentially emasculate the statute, while Gallus purports to create a cause of action based on something other than a breach of duty in relation to management s compensation and appears to establish a duty not contemplated by Section 36(b). (Jones is currently pending before the Supreme Court.) Application of Gartenberg The court s application of the Gartenberg factors is summarized below. Nature and Quality of Services. With respect to the plaintiffs claim regarding 12b-1 fees (that the growth in assets through the payment of 12b-1 fees was harmful to the funds, which were already experiencing growth that was causing fund performance to deteriorate ), the court found that the claim was not viable under Section 36(b) as it failed to address the nature 8 February 2010

9 Investment Management Update and quality of the services provided in exchange for the fees. Moreover, even if the claim were viable, the court found that plaintiffs did not adequately demonstrate a deterioration in fund performance. As for plaintiffs advisory fee claims (which plaintiffs tried to tie, in part, to allegedly relatively poor short-term performance during 2008), the court cited the widespread economic turmoil in 2008 and concluded that the funds generally good to excellent long-term performance was more indicative of overall performance. Finally, plaintiffs alleged that the funds administrative fees were excessive because, after the imposition of a five basis point cap, the defendants failed to return amounts that were over the cap before its imposition. The court rejected that argument, noting that plaintiffs made no effort to compare [the administrative] services to the fee exacted, or to challenge the nature and quality of services provided and thus failed to establish that the fees charged were disproportionate to the services rendered. Comparative Fee Structures. The defendants presented evidence that the funds fees were below industry averages for comparable funds as measured by Lipper and Morningstar, and were often among the lowest in their respective peer groups. While the court stated that the evidence of low comparative fees also supports a finding that Defendants fees were not disproportionate to the services rendered, the court did note that evidence of comparative fee structures, though certainly relevant, is of limited probative value in a Section 36(b) inquiry because of the potentially incestuous relationships between many advisers and their funds. Profitability of the Funds. The court found that profit levels of the funds to the adviser and its affiliates ranged from approximately 30% up to 52% on a stand-alone or combined basis. The court concluded that these levels fell within the range of profit margins that other courts have deemed acceptable under Section 36(b) and were comparable to or less than other similarly structured investment advisers. The court also noted, citing Gartenberg, that the adviser and its affiliates are entitled to recoup their costs and to make a fair profit without having to fear that they have violated Section 36(b). Fall-out Benefits. Fall-out benefits were defined in Gartenberg as profits to the adviser that would not have occurred but for the existence of the fund. In this case, the court found no evidence that the defendants received fall-out benefits. Further, the court found that since the adviser s revenues were reflected in its consolidated financials provided to the funds boards, to the extent there were any fall-out benefits, the benefits would have been considered by the boards in connection with their review of the financial statements. Economies of Scale. The court found that plaintiffs expert failed to show that the adviser s and its affiliates per-unit operating costs decreased as fund size increased. Further, the court noted that even if economies were assumed to exist, economies can be shared with fund shareholders in a number of ways, including breakpoints, fee reductions and waivers, offering low fees from inception, or making additional investments to enhance shareholder services. The court concluded its application of Gartenberg by noting that the Unaffiliated Directors carefully and diligently exercised their responsibility in approving the fees at issue. Among the factors noted by the 9

10 court as generally being important in such an evaluation were the expertise of the unaffiliated directors, the level of care with which they performed their duties and the extent to which they were fully informed. In this case, the court found that: the funds boards were comprised of a supra-majority of unaffiliated directors; the directors were well-qualified with significant experience relevant to the performance of their duties ; the governance structure of the boards allowed the Unaffiliated Directors to effectively review and analyze the information provided to them including the use of clusters and committees comprised of unaffiliated directors, chairpersons who were unaffiliated and executive sessions; the boards were advised by independent counsel; and the information provided to the boards was comprehensive and similar to that found in past cases to have been more than sufficient to permit the directors to make informed and knowledgeable decisions in approving the fees such as information on fund performance and expense ratios, comparative information on other funds, financial statements, information on processing costs and portfolio transactions, fund agreements proposed for approval, and a discussion of the statutory role of directors under Section 36(b). Court s Dicta Criticizes Directors While the court concluded there was sufficient evidence to establish the directors met their obligation under Gartenberg, the court in dicta, which does not establish precedent, questioned the adequacy of the directors inquiry into the amount of compensation paid to adviser and distributor employees. Specifically, the court observed, there is no evidence that any director ever asked for such information, and when management advised that its compensation levels (which were undisclosed) were necessary to meet competition in the marketplace, the directors simply accepted the claim as gospel. There is not a shred of evidence that any director asked management to identify who [the adviser] perceived as its competition, to provide information regarding compensation levels at those competing firms, to compare those compensation levels to compensation paid to [fund adviser and distributor] employees, or to explain why those compensation levels were necessary. The court went on to observe that, although the directors were represented by counsel and were provided with detailed materials to which they and Defendants can point to and say, see how thorough and careful we were, the entire process seems less a true negotiation and more an elaborate exercise in checking off boxes and papering the file. As to 12b-1 fees, the court noted, the directors apparently failed to consider that the increase in assets under management resulted in significant part from appreciation of existing accounts and not the addition of new investors. Moreover, no evidence was presented that the fee was decreased as the assets under management substantially decreased. Typically, when directors have considered issues related to compensation of personnel, they have done so to ensure that the interests of adviser employees are aligned with those of the funds and shareholders, and not to account for the level of that compensation in determining the reasonableness of advisory fees. To our knowledge, no other court has indicated that the compensation paid to adviser employees is a pertinent factor to consider in evaluating an advisory contract. The court did not address or give weight to 10 February 2010

11 Investment Management Update the fact that payment of 12b-1 fees based on fund assets (which leads to fee increases when assets increase and fee decreases when assets decrease) is an industry-standard arrangement and could not cite authority for the position implied in its dicta, nor did the court cite any authority or provide any argument supporting its implication that there is a distinction under Section 36(b) between true negotiation and the careful and conscientious review of the Gartenberg factors to determine that an advisory fee is not unreasonable under the Gartenberg standard. Note: K&L Gates LLP represents the independent directors of one of the funds involved in the above litigation, although our firm did not provide representation in connection with the litigation or any conduct that was the subject of the litigation. Anchorage Austin Beijing Berlin Boston Charlotte Chicago Dallas Dubai Fort Worth Frankfurt Harrisburg Hong Kong London Los Angeles Miami Moscow Newark New York Orange County Palo Alto Paris Pittsburgh Portland Raleigh Research Triangle Park San Diego San Francisco Seattle Shanghai Singapore Spokane/Coeur d Alene Taipei Tokyo Washington, D.C. K&L Gates is a global law firm with lawyers in 35 offices located in North America, Europe, Asia and the Middle East, and represents numerous GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market participants and public sector entities. For more information, visit K&L Gates is comprised of multiple affiliated entities: a limited liability partnership with the full name K&L Gates LLP qualified in Delaware and maintaining offices throughout the United States, in Berlin and Frankfurt, Germany, in Beijing (K&L Gates LLP Beijing Representative Office), in Dubai, U.A.E., in Shanghai (K&L Gates LLP Shanghai Representative Office), in Tokyo, and in Singapore; a limited liability partnership (also named K&L Gates LLP) incorporated in England and maintaining offices in London and Paris; a Taiwan general partnership (K&L Gates) maintaining an office in Taipei; a Hong Kong general partnership (K&L Gates, Solicitors) maintaining an office in Hong Kong; and a Delaware limited liability company (K&L Gates Holdings, LLC) maintaining an office in Moscow. K&L Gates maintains appropriate registrations in the jurisdictions in which its offices are located. A list of the partners or members in each entity is available for inspection at any K&L Gates office. This publication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. To stop receiving all marketing communications from K&L Gates, please your name and mailing address to klgates@klgates.com, or send a note to Unsubscribe, K&L Gates, 925 4th Ave Ste 2900, Seattle, WA K&L Gates LLP. All Rights Reserved. 11